How To Build Long-Term Sustainable Wealth

By | 2019-01-28T03:14:26+00:00 14 January, 2019|Investments|

I bought my first stock at 16, and I remember it vividly. I went to the bank in my village and asked the teller how to buy a stock I read about in a newspaper article (and I showed him the article in the newspaper!). What did he do? He sent me back home to get my parents. Haha, that was how I got started in the investing game. But I have stayed with it ever since. The big takeaway here is this one: Investing is a marathon, not a sprint!

You have to stick with your investment game for a while until you figure things out. The stock market is full of traps, and even seasoned investors keep on making mistakes. I have discussed the more common pitfalls for stock market investors in my article “Investing 101 – Don’t Make These Beginner Mistakes”, which I would recommend to read.

I am 37 now, and I retired at 32. I made heaps of mistakes. If I didn’t make all the stupid mistakes I did (taking speculative positions, running with outsized positions, not doing my research as much as I should have done it), I would have probably been able to retire 2-3 years earlier, with more money in the bank, too.

Looking back, it was great to start the investing game at such a young age. In fact, investing in stocks while you are still young is the single most important thing you can do if you want to retire early, or rich, or both!

Investing can be intimidating at first, but it can also be a whole lot of fun if you stick with it and find an investment strategy that works for you.

People often ask me what my long-term strategy is when it comes to investing and what books I think are worth reading when it comes to mastering the subject of investing. I have read quite a few books about investing, but the best book, hands down, is this one: Benjamin Graham’s ‘The Intelligent Investor’.

Benjamin Graham was a professor at Columbia University and later taught Warren Buffett, the most successful investor of our time, about the principles of ‘value investing’, a paradigm that utilizes fundamental analysis in order to identify undervalued investments. Benjamin Graham is widely considered to be the father of value investing.

I highly recommend you to read this book from the first to the last page, whether you are just starting out in the investing game or not. It is an incredibly valuable resource that will prepare you to invest your hard-earned money the right way. It teaches you to think about investments in fundamental terms, providing you with a solid intellectual foundation that will help you understand and analyze investments. It further prepares you emotionally for the roller coaster ride that awaits when you step foot into the stock market arena.

‘The Intelligent Investor’ provides a solid, fundamental basis for you to build long-term wealth via dividend-paying stocks.

Financial wealth largely comes from investing in quality companies with strong earnings and dividend growth prospects. The stronger those companies are in their respective industries, the better the long-term earnings and dividend potential of such companies. Warren Buffett is a major shareholder in large, well-known corporations such as Wells Fargo, Bank of America, Goldman Sachs, BSNF, See’s Candies, Geico, McDonald’s, American Express and many others.

Warren Buffett does not time the market and does not speculate with his money. He does his research, applies the principles of value investing, and often famously buys stocks when nobody else wants to buy them. He is a contrarian at heart who invests for the long haul, which allows him to harness the power of compounding.

Compounding plays a huge role in building long-term wealth, which is why you have a HUGE advantage in the investing game when you are starting at an early age, the way I did. The earlier you start, the longer your money can compound. The longer you compound, the larger your nest egg is going to be.

If you want to build long-term wealth, you should start picking stocks (after reading ‘The Intelligent Investor’) that have

  1. An economic moat, usually companies with a distinct economic advantage such as a dominant market position or strong brand recognition;
  2. A history of cash flow, earnings and dividend growth;
  3. A strong balance sheet; and
  4. an excellent management team that has proven to be shareholder-friendly.

A superb way of investing into a mix of companies that exhibit these characteristics is to simply buy Warren Buffett’s Berkshire Hathaway Inc. Class B shares.

Berkshire Hathaway is Warren Buffett’s investment holding and consolidates all of his businesses. Think of it this way, if you buy Berkshire Hathway Inc. Class B shares, you essential own a tiny piece of Warren Buffett’s conglomerate empire.

If you invest in Berkshire Hathaway, you have an opportunity to invest alongside Warren Buffett, one of the most successful investors ever. Since Warren Buffett has widely outperformed the S&P 500 stock market index over time, an investment in Berkshire Hathaway is a great way, in my estimation, to build long-term wealth and beat the market, too!

Of course, nothing stands in the way of you trying to beat Warren Buffett’s excellent long-term investment returns. You can surely try it for yourself, but be prepared to invest a LOT of time, money and effort to beat the master. The easy way is probably to just buy Berkshire Hathaway’s shares and let Warren Buffett himself do the job for you!